Economic studies
Liberia

Liberia

Population 4.7 million
GDP 694 US$
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Synthesis

major macro economic indicators

  2016 2017 2018 (e) 2019 (f)
GDP growth (%) -1.6 2.5 3.0 4.5
Inflation (yearly average, %) 8.8 12.4 21.3 24.5
Budget balance (% GDP)* -3.7 -5.2 -5.1 -4.9
Current account balance (% GDP) -14.1 -19.0 -18.3 -21.4
Public debt (% GDP) 28.3 34.4 40.1 42.5

(e): Estimate. (f): Forecast. *Last fiscal year from July 1, 2018 to June 30, 2019.

STRENGTHS

  • Diverse natural resources (rubber, iron, gold, diamonds, oil)
  • Strong financial support from the international community
  • Member of the Economic Community of West African States (ECOWAS)

WEAKNESSES

  • Infrastructure shortcomings
  • Dependent on commodity prices
  • Significant levels of poverty and unemployment; shortcomings in education and healthcare
  • Recent Ebola epidemic, which could reoccur
  • Recent and fragile democracy; high levels of corruption
  • Difficult business climate
  • Dominant informal sector

RISK ASSESSMENT

Activity continues to recover

In 2019, the Liberian economy will continue to recover for the third consecutive year following the recession caused by the Ebola virus, falling commodity prices and the gradual withdrawal of the UN peacekeeping mission (UNMIL). Nevertheless, the level of growth, although comfortable, will be below the level reached in the pre-Ebola period (around 7%). Activity is mainly linked to the supply of services (54% of GDP in 2017) and agriculture (34% of GDP), which employs 60% of the local population. Recent investments will ensure the sector enjoys strong momentum. In particular, the construction of new oil processing plants by Sime Darby and Golden Veroleum Liberia should boost palm oil production, which soared by 124.5% in the first six months of 2018. However, it was the mining industries that powered the recovery in 2017 (accounting for 12% of GDP). Gold and diamond production is expected to continue to drive growth.

Public investment is set to increase, supported by concessional loans from international organisations. In this regard, the World Bank has approved a new partnership for 2019/24, with new aid devoted, among other things, to building infrastructure and rehabilitating roads. Private investment is enjoying a better climate of confidence thanks to the end of the uncertainties associated with the 2017 presidential elections. Inflationary pressures are expected to increase due to high prices of imported products (notably crude oil and some food products). Depreciation of the national currency against the US dollar is amplifying the trend. This could constrain private consumption by affecting household purchasing power.

 

Deficit financing still dependent on foreign aid

The government deficit is expected to decline slightly in 2019 due to a mix of spending cuts and improved allocation. The government plans to reduce its main expenditure item – the civil service wage bill (50% of total expenditure and 6% of GDP) –, notably by cutting ministers’ pay by 10% and reducing the salaries of 4,140 senior civil servants. However, public debt is expected to continue to go up as a result of the increase in its external share (72% of the total), which expanded by 4.2% over the first six months of 2018. Composed of multilateral (92%) and bilateral (8%) concessional loans, this debt is set to increase so as to finance the deficit and compensate for the lack of domestic resources for the continuation of government development projects.

The current account deficit is massive due to the chronic trade deficit. Exports of rubber (33% of total exports in 2017), gold (32%) and iron (22%), although rising, will not be enough to offset the increase in imports, particularly of machinery and capital goods (22% of total imports), driven by the construction of infrastructure. The trade deficit is partly offset by remittances from Liberian expatriates in the United States (17% of GDP in 2017), of which 25% is recovered by the central bank to replenish the foreign exchange reserves. The current account deficit is financed by FDI (7.4% of GDP) and external loans. The monetary authorities will likely continue to intervene in the foreign exchange market to contain the depreciation of the Liberian dollar against the US dollar. However, the effectiveness of monetary policy remains constrained by the informal economy (94% of the currency in circulation is held outside the banking system), the dollarisation of the economy (90% of credits and 80% of deposits), and limited foreign exchange reserves (three months of imports in 2017).

 

Confidence in the new government undermined

Former footballer George Weah was elected President in December 2017. His election, after two civil wars (1990-97 and 1999-2003), marked the first democratic and peaceful transition between two elected presidents in 73 years. Through his “Pro-Poor” programme, President Weah has affirmed his commitment to tackle the lack of infrastructure, promote access to basic public services, and fight corruption by promoting transparency within the government. This last point led to the establishment of a committee to verify the legal compliance of all concession contracts granted to companies under the previous president. However, a recent scandal has tarnished the popularity of the new government: LRD 16 billion (equivalent to €83 million) in banknotes being brought from Sweden reportedly disappeared and never reached the central bank's coffers. In a country of extreme poverty, with half of the population living below the poverty line, this led to angry protests by people criticising the incompetence of the current administration. A government investigation is currently ongoing to clarify this matter.

The business environment, which is hurt by the lack of infrastructure and legal property rights (non-customary), remains difficult, with Liberia coming 174th out of 190 in the Doing Business 2019 ranking.

 

Last update: February 2019

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